Has the Market Bottomed?

The S&P 500 index officially entered bear market territory this week, having fallen more than 20% since its peak in January following three years of outstanding returns. The stock market’s fall this year has many wondering whether the declines will continue or the market is close to finding a bottom. While there is no shortage of opinions on this subject, the truth is no one knows the answer.

The challenges loom large, including the highest inflation in four decades, uncertainty regarding Fed policy, signs of slowing economic growth despite strong consumer spending, and war in Ukraine with no clear end in sight. It is easy to find reasons to believe the worst is yet to come.

Nevertheless, market history gives us reasons for optimism. A recent article in MarketWatch makes the point that the stock market rose sharply following the beginning of ten of the past twelve bear markets. The S&P 500 index rose almost 23% on average in the first year following the onset of a bear market, which is certainly encouraging news amidst today’s gloom and doom.

The stock market has always recovered from major setbacks, including pandemics, financial crises, the dot-com bubble, world wars, recessions, depression, and more. Some of these recoveries have been quick, others have taken longer, but they have always happened. While the issues and challenges are unique in each instance, we see no reason for the historical pattern to change now.

What are the investment implications given the current uncertainty? Above all, investors should avoid panicking and selling stocks indiscriminately after the market’s sharp decline. We believe the best way to prosper in the stock market is to stick with a proven strategy through both the good times and the bad. It is also wise to look for opportunities to invest in solid companies whose shares have been overly punished in the broad market selloff. We have recently purchased some stocks that we believe fit this bill, knowing that we won’t get the timing exactly right but believing that they will be good long-term investments.

Times like these test the patience and discipline of even the most experienced investors. We should be prepared for further declines, and we should also be encouraged by past market behavior.   

Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock’s weight in the index proportionate to its market value. This blog contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this blog will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.